Leeds improves criteria for lending into retirement
Leeds Building Society is improving criteria for lending into retirement to offer borrowers more choice.
The Society has responded to rising demand from borrowers and brokers for greater flexibility following the changes to pension access rules announced in the 2014 Budget, which came into force last year.
The Council of Mortgage Lenders (CML) regards any mortgage which extends beyond the borrower’s 65th birthday as lending into retirement – in 2015 more than a third (35%) of all new residential lending* was in this sector.
With immediate effect, the Society has increased the maximum term from 25 years up to 40 where the customer is borrowing past their stated retirement age.
Borrowers who are within 10 years of their stated retirement age, or whose loan extends more than five years into their retirement, will continue to be underwritten on the lower of current earned or future pension income.
Affordability for those borrowers with more than 10 years to their stated retirement age will be assessed on their current income. So, for example, an applicant aged less than 60 years old intending to retire at 70 will be assessed on current income, where the loan does not extend beyond the age of 75.
“The age at which people now step onto the property ladder is increasing so logically their age at the end of their mortgage may also be higher,” said Richard Fearon, Leeds Building Society’s Chief Commercial Officer.
“There’s also greater flexibility over when people choose to retire, which can affect their ability to pay for a mortgage.
“The new pension freedoms mean more choice about when to access a savings pot but most people don’t decide how to use their retirement fund until close to the time they stop work.
“As the UK population ages and life expectancy increases, this market is only going to grow and lenders need to address the changing needs these demographic shifts are creating.
“These changes include younger borrowers choosing a longer term, which means their mortgage could continue into their 60s or 70s.
“We’re responding to this changing demand and behaviour – as we did when we increased our maximum age for residential borrowers from 75 to 80.”
As a prudent and responsible lender, Leeds Building Society will continue to restrict lending into retirement to a capital and interest basis, while applications using pension income will be assessed by specialist underwriters.